DipIFR Syllabus C. Presentation and additional disclosures - IAS 33 Rights Issue - Notes ^{5 / 8}

A rights issue is:

• An issue of shares for cash to the existing ordinary equity holders in proportion to their current shareholdings.

• At a discount to the current market price. It is, in fact, a mixture of a full price and bonus issue.

  So again we do the same as in the bonus issue - we pretend it happened all year and to do this we multiply the previous totals by the bonus fraction.

  The problem is - calculating the bonus fraction for a rights issue is slightly different:

Example

2 for 5 offered at £4 when the market value is £10

So we are being offered 2 @ £4 = £8

For every 5 which cost us £10 each = £50

So we now have 7 at a cost of £58 = 8.29

This is what we call the TERP (theoretical ex-rights price).

The bonus fraction is the current MV / TERP = 10 / 8.29